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Ann Lipton

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Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined the Tulane Law faculty in 2015 after two years as a visiting assistant professor at Duke University School of Law.

As a scholar, Lipton explores corporate governance, the relationships between corporations and investors, and the role of corporations in society.  Read more.

I’ve been waiting for The Founder to open for months.  Starring Michael Keaton as Ray Kroc, it tells the story of the founding of McDonald’s restaurants.  As business junkies and professors know, McDonald’s was an innovation: it created the modern franchise, identical restaurants run by individual entrepreneurs in locations across the country and, eventually, the world.  It also represented a critical development in the history of fast food, transferring the assembly line from the factory floor to the kitchen.  Most basic business classes talk a lot about McDonald’s, because the franchise system – and the degree of control that McDonald’s corporate exercises – raise interesting questions about agency law and the definition of employment.

[Spoilers under the cut, not very if you already know the story]

A couple of months ago, investors in Theranos filed a class action complaint seeking damages for fraud and negligent misrepresentation under California law.  Theranos is based in California; presumably, the plaintiffs intend to argue that any false statements emanated from California and therefore California law covers even out of state purchases.  See Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal. 4th 1036 (Cal. 1999). 

The reason this interests me is because it’s rare – not unheard of, of course, but rare – to see fraud-based securities class actions concerning securities that are not publicly traded.  SLUSA eliminated the possibility for most companies, but SLUSA alone isn’t the problem; the other hurdle is the difficulty of establishing reliance on a classwide basis, as even before SLUSA, fraud-on-the-market doctrine was largely limited to Section 10(b) claims. 

California law, however, is different from most states’, because California’s blue sky law explicitly permits claims for deceit based on price distortion.  See Mirkin v. Wasserman, 5 Cal. 4th 1082 (Cal. 1993); Cal. Corp. Code, §§ 25400, 25500. 

It will be interesting to see if that’s how the Theranos class plans to approach matters; the difficulty will be establishing that, for example, Investor A’s willingness…

A couple of months ago, Snapchat’s parent announced that the company would hold an IPO in 2017 – the largest and most high-profile IPO since Alibaba in 2014.  Given the sluggish IPO market, as well as Snapchat’s general name recognition and tech cachet, the announcement was a big deal.

But it’s possible there’s going to be a monkey in the wrench.  On January 4, a former Snapchat employee (fired after 3 weeks) filed a lawsuit alleging two of Snapchat’s metrics – and which ones are redacted from the complaint – were fraudulently manipulated in order to inflate Snapchat’s valuations to private investors and in anticipation of the IPO.  (The redactions are due to concerns that the allegations are covered by the plaintiff’s confidentiality agreement).  The unredacted portions of the complaint allege that the company never built an appropriate team to analyze its metrics, and that the employee was illegally fired in retaliation for blowing the whistle.

Snapchat has given a statement to the media denying the allegations as the fictional creations of a “disgruntled former employee.”

Though the redactions are extensive, the complaint does offer at least a hint of what’s at stake.  In Paragraph 24, the complaint…

Tulane Law School invites applications for its Forrester Fellowship and visiting assistant professor positions, both of which are designed for promising scholars who plan to apply for tenure-track law school positions. Both positions are full-time faculty in the law school and are encouraged to participate in all aspects of the intellectual life of the school. The law school provides significant support, both formal and informal, including faculty mentors, a professional travel budget, and opportunities to present works-in-progress to other faculty at workshops and in various settings.

Tulane’s Forrester Fellows teach legal writing in the first-year curriculum to two sections of 25 to 30 first-year law students in a program coordinated by the Director of Legal Writing. Fellows are appointed to a one-year term with the possibility of a single one-year renewal. Applicants must have a J.D. from an ABA-accredited law school, outstanding academic credentials, and at least three years of law-related practice and/or clerkship experience. To apply, please submit your materials via Interfolio at https://apply.interfolio.com/40042. If you have any questions, please contact Erin Donelon at edonelon@tulane.edu.

Tulane’s visiting assistant professor (VAP), a two-year position, is supported by the Murphy Institute at Tulane University (http://murphy.tulane.edu/home/), an interdisciplinary…

Happy (Almost) New Year!  As 2016 draws to a close, I offer three quick hits of interesting recent business law developments:

First:  The endlessly-running case of Erica P. John Fund v. Halliburton has finally settled!  Halliburton has been a particular obsession of mine lo these past 6 years or so, and I even attended the Fifth Circuit oral argument held in September.  (My report of that argument is here, where I link to my prior blog posts on the subject).  I’m sort of sad to see it go, even though I found many of the opinions frustrating.  In any event, Alison Frankel has a nice retrospective of the case, including how David Boies ended up as lead attorney for the plaintiffs after the death of his daughter, the previous lead.  

Second: I previously posted about Facebook’s move to create a nonvoting class of stock, essentially as a mechanism to allow Mark Zuckerberg to have his cake and eat it too (i.e., divest his stock while still maintaining voting control).  The move was duly approved by an independent special committee, but – as was recently revealed in a shareholder lawsuit – one of the committee members appears…

I previously posted in praise of Sandys v. Pincus for its excellence as a teaching tool – which meant that its reversal was inevitable, as occurred days after classes concluded. (Same with the Salman v. United States decision, though that changed little; naturally; we won’t even what get into what changes midstream when I’m teaching Securities Regulation).  The reversal itself is quite interesting, though, as the latest entry in the Delaware Supreme Court’s developing jurisprudence on friendship/social ties as a basis for director disqualification.  And, strikingly for Delaware, it generated a dissent.

In Sandys, the basic dispute involves a secondary offering by the social-media game company Zynga.  The plaintiffs filed a derivative lawsuit alleging that the secondary offering was designed to allow major insiders – including the controlling shareholder, himself a member of the Zynga board – to cash out before a disappointing earnings announcement.  As a result, the secondary offering materials were alleged to have omitted critical facts about the company, ultimately exposing Zynga to a securities fraud lawsuit.

The Chancery decision held that demand was not excused, resting in large part on the court’s conclusion that the directors who were not directly implicated in…

One of the more … striking … habits of President-Elect Trump is his tendency to use Twitter to attack specific companies that have displeased him in some way.  For example, after the CEO of Boeing criticized him, he tweeted:

After Vanity Fair published a scathing review of Trump Grill, he tweeted:

And other times, Trump seems to simply be reacting to whatever he sees on the news.

These tweets might explicitly threaten to harm their targets through the exercise of government power – such as the threat to cancel Boeing’s Air Force One contract – but even if they don’t, the implicit possibility is there.  As a result, Trump’s tweets move the market.  Boeing’s stock reacted negatively to Trump’s tweet (though it rebounded).  Shares of Lockheed Martin dropped dramatically after Trump criticized one of its fighter jets as too expensive.

Wall Street traders have begun building a Trump tweet effect into their models.  One anecdotal report says that compliance departments have lifted bans on trader Twitter usage, aware that presidential-tweet monitoring is now a necessary part of the job.

The Wall Street Journal even published a blog post recommending four proactive steps all businesses take in anticipation of a Trump twitter attack.

All of this has prompted some accusations of market manipulation and insider trading.  For example, it’s been reported that some lucky trader started dumping shares of Lockheed Martin six minutes before Trump tweeted, though that could simply be the result of hedge funders correctly predicting where Trump would tweet next.

For the sake of argument, let’s say that Trump’s tweet attacks – at least some of them – are calculated to drive down stock prices in order to allow someone (maybe Trump himself, maybe someone in his circle) to make a profit.  Is there anything illegal here?

[More under the jump]

As part of my ongoing effort to sample most pop cultural representations of corporate/business life, I’ve started watching SyFy’s Incorporated.  Incorporated envisions a dystopian future where, due to global warming and related environmental catastrophes, the world’s governments have become bankrupt, and in their place, “multinational corporations have risen in power and now control 90% of the globe.”

We learn in the first episode that formal governments still exist, but in almost vestigial form; as a practical matter, multinational corporations are in charge.  These corporations compete with each other for resources and market share.  They target each other with espionage and sabotage; when one’s stock price falls, the others’ stock prices rise.  Employees lead a comfortable life within the corporate compound, so long as they adhere to the rules set by their employers; outside of corporate compounds, life is poverty and anarchy.

I get where this show is coming from; I mean, fear of corporate control of government represents a particularly timely anxiety.  And there are lots of sly jokes about today’s political environment – a television news report, for example, tells us that the “Canadian Prime Minister is constructing a fence after 2073 became a record year…

There are always policy questions about the degree to which public regulation should be enforced by government actors, by private actors, or by a combination of both.  In securities law, for example, striking the right balance is a perennial debate.

Which is why I read with interest this New York Times story about efforts to combat counterfeiting in China. 

China has a serious problem with counterfeit goods.  To some extent, that kind of problem can be addressed via government enforcement actions; however, China also suffers from what one might describe as an extreme case of regulatory capture – namely, corruption at the local level that compromises enforcement efforts.

So China has turned to private enforcement, by bolstering its consumer protection laws: consumers who purchase counterfeit goods can get damages equal to several times the value of the product.  And predictably, these laws have spawned a new profession: counterfeit hunting.

That by itself would not be so bad – why not let consumers, acting like private attorneys general, ferret out counterfeit goods?  The problem is, since damages are based on the number of products purchased, hunters purchase counterfeits in large numbers, filling warehouses with them.  They also target minor labeling errors…

Okay, this post has nothing to do with the subject line; given the time of year, I just couldn’t resist.

(Maybe we’ll just characterize that episode of WKRP in Cincinnati as a demonstration of PR tactics gone wrong.  See?  There’s a business law hook).

Anyhoo, today I want to call attention to the phenomenon of the fake whistleblowing hotline. 

As compliance becomes an increasingly large part of corporate operations – and a de facto reconfiguration of corporate governance standards – it seems that companies are fond of creating “whisteblowing hotlines” to demonstrate their commitment to compliance with the law.  Public companies, in fact, are required to do so under Sarbanes-Oxley.

Which is why two recent news items are so disturbing.  First, in connection with the Wells Fargo fake account scandal – on which both Anne Tucker and Marcia Narine Weldon recently posted– it turns out that employees who offered tips on the Wells Fargo whistleblowing hotline were quickly fired; meaning that the hotline itself operated as a kind of reverse-ethics test to weed out employees most likely to object to Wells Fargo’s practices.

And it turns out that Wyndham Vacation Ownership did the same thing.  This company, which sells…